This graph:
http://d2o7bfz2il9cb7.cloudfront.net/main-qimg-c18ef2d8f8bd7...
is showing exactly the reason Craigslist is doing well.
Each of the alternatives displayed represents a specialized, vertical solution for just one (or a couple) of the categories offered by Craigslist,
There is no way that Craigslist could compete head to head with every one of them anyway, at best they could choose a couple of categories and build new products focused on them.
Instead they are choosing to be a general platform.
Nothing lasts forever, and no doubt Craigslist will fade away over time, as will facebook, myspace and Windows itself, but in the meantime they are pretty well positioned, providing a 'good enough' solution for a wide range of categories is just as reasonable as providing a targetted solution to a specific category.
What they would absolutely fail to do is provide an excellent vertical solution for every category they offer,
Which means those competitors on that graph would still exist even if Craigslist improved its site, and probably they would still be doing well.